The $12 Billion Denver Wealth Manager That's Ahead Of The Curve, Not Chasing It

Wendy Dominguez, 46, never saw herself driving a 16-foot Ryder truck through Denver lugging around office equipment, much of it bought from second hand stores and a local Costco. Even nearly two decades later the memory seems comical, but those were the humble roots of Innovest Portfolio Solutions, a Denver-based registered investment advisor with $12 billion in assets under management as of the end of the first quarter.

The truck haul was in July 1996 and Dominguez and her long-time colleague, Rich Todd, 53, had just quit prominent jobs at Dain Rauscher, the predecessor of RBC Wealth Management, to hang out their own shingle.

Dominguez readily recalls the experience that sent sent her fleeing from the conflict-riddled world of financial advisors housed inside a large brokerage firm. She was growing frustrated with the weak performance of mutual funds managed by Texas Commerce Bank and wanted to ditch the firm as a provider for her clients. But there was a problem: Texas Commerce happened to be one of Dain Rauscher’s largest trading clients.

A day later, Dain Rauscher's president called and asked to have the manager reinstated to avoid ruffling feathers. “That was the deal that pushed us over the edge,” Dominguez says.

She, Todd and two colleagues soon left Dain Rauscher -- they say it was an amicable departure -- and founded Innovest, taking along 25 clients with about $250 million in assets.

“It wasn't like 'who’s with me? I’m bringing my goldfish!'” jokes Dominguez, loosely citing the famous Jerry McGuire scene in which Tom Cruise makes an impassioned appeal to colleagues as he quits his sports agency, but striking out on their own was the most significant move of their careers.

Dominguez and Todd were ahead of the curve in 1996. Since the failure of Lehman Brothers, there’s been a full-fledged exodus of wealth management professionals from large brokerage firms and banking conglomerates. Some have left seeking freedom from bureaucracy and a relentless focus on commissions. Conflicts, in many respects, are greater now than they were in the 1990s.

Since its modest beginnings, the mission at Innovest has been simple. They champion their fiduciary duty to their clients, eliminating potential conflicts by working for fees. They also steer clear of stockpicking, instead building portfolios for institutional and high net worth clients by focusing on asset allocation and manager selection.

Innovest uses a proprietary model to plot out client return profiles based on risk tolerance and allocation. Translation: the firm doesn't shoehorn clients into cookie-cutter portfolios or a uniform set of financial products.

The firm also prides itself on bucking conventional wisdom, like the suggestion they cull the firm's smallest clients and focus on larger accounts. “Our approach has never been to minimize service to clients or pass them off,” says Todd. Many of Innovest’s smallest clients hearken back to the firm’s earliest days. “We want them to feel as important today as they did in 1996,” he adds.

Refusing to abandon older, smaller clients in the chase for newer, wealthier ones has done little to hurt Innovest's growth. Assets have continued to pile up, already swelling from $8.9 billion at the end of 2014 (the point at which we rank our Top Wealth Managers list) to $12 billion. The fast start to 2015 is well beyond the measured pace Dominguez and Todd typically aim for, targeting 10% annual growth by reeling in 10-20 new clients each year.

Todd notes that the firm has taken on several high net worth families with $80-$150 million in assets in recent weeks, which may prompt a round of hiring to bolster a firm that started as a five-person team and now counts 37 employees. One idea Innovest is toying with to meet new client demands are services for family offices such as real estate management and accounting.

The firm's staffing strategy is also responsive to conditions in financial markets. The Federal Reserve’s 77-straight months of holding benchmark interest rates at zero has roiled bond portfolios that formerly generated a safe 5%-6% return. In order to find income-generating assets that buffer stock allocations, Innovest has steered clients into alternative assets like multi-strategy managers, private equity funds, credit managers and hedge funds.

“Alternatives can replace or supplement some of the volatility control that bonds have had in the past,” says Dominguez of today’s frustrating low rate environment. “But with everything there are pros and cons,” she concedes. To ensure its clients find the best opportunities, Innovest has hired former Wall Streeters who specialize in alternative investments. Among the firm's preferred managers in the space are Ironwood Partners, Lighthouse Partners and Private Advisors.

One area of concern for Innovest is keeping clients' risk appetites in check at a time when stock markets are relentlessly churning higher and bonds offer pitiful yields.

“Investors are thinking about reaching for more risk because interest rates are so low, and they fail to look at the downside,” Todd warns.

As they did in 2008, Innovest is working with clients to ensure they remain diversified and have reasonable expectations. “It feels like a little bit of a 2000 or 2007 and we just want to make sure our clients understand their risks,” he says.

Innovest holds a conservative outlook for 2015 and beyond. U.S. gross domestic product growth probably will stay in an unexciting 2%-2. 5% holding pattern, and a long-deferred hike of the Fed Funds rate won’t translate to higher long-term bond yields anytime soon. Expect stocks to return 7.5%-8% annually over the next five years, while fixed income returns 2.25% and municipals 2%.

“Concentration is what created our clients wealth, mostly through their businesses,” says Dominguez. “Our job is to protect that and the best way is through diversification.”

I’m a staff writer at Forbes, where I cover finance and investing. My beat includes hedge funds, private equity, fintech, mutual funds, M&A and banks. I’m a graduate of Middlebury College and the Columbia University Graduate School of Journalism, and I’ve worked at TheSt...